Film summary
“Too Big to Fail” is a drama by Peter Gould, and Curtis Hanson is the film director. The film highlights the events during the challenging economic period in the United States, regarded as the 2008 financial crisis or Great Recession. It focuses on the thriving of the banking sector, which was on the verge of collapsing. As the film denotes, none of the players in the banking sector and the political field had a clue that an adverse financial period was approaching. Worse than the unforeseen crisis was the lack of the requisite financial skills to deal with the phenomenon once it occurred. It features the attempts of Henry Paulson and Ben Bernanke to salvage the declining economy (Hanson, 2011). Despite Paulson, the U.S. Treasury secretary, trying to save Lehman does not approve the decision to use public funds to save Lehman, making it fail and file for bankruptcy. Nevertheless, he turns his focus on AIG because he fears the crumbling of AIG could be detrimental to the economy and its effects would be hard to redress afterward. He designs several plans, with the first failing, but the banks are eventually rescued. This complex question can critically reflect the moral hazard: “Lehman fails, but unfortunately, AIG is too big to fail?”
Plot and main characters
The film is centered on the negotiations between Paulson, Ben Bernanke, the Federal Reserve chair, investment bankers, British regulators, and political contributors whom Congress represents. In the beginning, news emerges of the meltdown of the mortgage sector and the Federal guarantees Bear Stearns deal sale to JPMorgan Chase. This resulted in short sellers flooding Lehman Brothers. Fuld, Lehman CEO, excluded their toxic assets during negotiations with the Korean investors claiming the deal was too low. With their toxic real estate, Lehman seeks Federal involvement in their acquisition by the Bank of America. However, Paulson maintains that the government will not use public funds to protect any firm. Lehman lost the chance, and bank of America purchased Merrill Lynch instead (Sorkin, 2010). The remaining buyer they approach is Barclays. Unfortunately, British banking regulations hinder the deal, and Lehman proceeds to file for bankruptcy. Lehman’s failure impacts are felt across the financial sector, and the stock environment is shaken, causing AIG, an insurance company, to face hard times. This hits Christine Lagarde, the French Finance Minister, differently and convinces Paulson that AIG should not be a victim.
Bernanke wants the government, through Congress, to actively participate in the course. Paulson and Bernanke convinced Congress to allow the government to save AIG, claiming that the impacts of AIG’s failure were projected to be worse than the effects of the Great Depression on not only the U.S. economy but also it extends to Europe. Although the first attempt to purchase toxic assets failed, the second one involved introducing a Troubled Asset Relief Program (TARP) that was passed amidst unrest. A loan of $85 billion is utilized to save AIG, and the banks are bailed out. Even though the main objective of the TARP is to enable banks to avail credit finance to ordinary consumers to stabilize and restore investor confidence, the banks did not honor the agreement. They leveraged other rewarding opportunities at the expense of the crumbling stock market, which eventually crashed. Thus, banks contributed hugely to the Great Recession.
Main ethical issues
Several concerns in how the negotiators tolerate risk result in a moral hazard. The decisions of the key players are questionable.
Lehman case
Fuld is adamant about accepting a low deal for the real estate assets as offered by Korean investors. His inability to sacrifice considerable prices and save the economy led to Lehman’s decline, which affected the entire market in return. This was ethically unacceptable since that marked the beginning of the Great Recession, whose effects have lasted for an imaginable period. Lehman’s financial difficulties arose just after the Federal guaranteed Bear Sterns for sale, but when Lehman demanded the same gesture, Paulson declined. This may be seen to depict unfairness and selective intervention.
Nevertheless, again, the issue can be examined from a different dimension. Paulson does not want to take a proactive stand because he wants to promote accountability, especially for all CEOs. By this, he is promoting ethical behavior.
The backdoor bailout of AIG
Paulson does not care about the consequences of the means employed in preventing the economic crisis but focuses on the overall goal. He is blinded by the notion that “banks are too big to fail.” He uses this notion to inflict fear and panic on the other parties during negotiations to lure them into agreeing. His first plan involves the government purchasing toxic assets from banks to relieve them of the risk and inject some funds into their cash reserves (Greenberg et al., 2013). This action puts taxpayers’ money at stake, but Paulson does not mind, provided the banks are rescued. After the attempt failed, he now drafted the Troubled Asset Relief Program (TARP) creation but forgot to engage Congress on the methods to ensure the funds were effectively utilized. The aftermath is lamentation. The efforts to save AIG contradicted the initial rulings in the beginning. He maintained that the government would not be involved in any private acquisitions for accountability, watching Lehman fail. It might be viewed as biased, but the baseline is that banks are too big to fail. They are crucial to the nation’s overall economy, and their failure is detrimental. Their crash needs to be prevented at all costs.
The behavior of the banks after the bailout
The fundamental aim of creating the TARP was to boost the banks’ financial capability to enable them to lend funds to the members of the public. Once the banks received the capital injections, they diverted the mission and directed the money into other opportunities, not in the interest of the consumers. The taxpayers’ funds did not benefit them as intended, resulting in a stock market crash. All the risky efforts did not bear fruits because as the decision makers considered the banks too big to fail, the banks took advantage and tolerated much more significant risks with false confidence that the government would intervene.
The behavior of the main actors
Bernanke
At first, Bernanke portrays an image of an independent leader when he examines the memo brought to him to consider the Federal’s involvement in the economic intervention. He clearly states that the involvement would further stifle the economy. He intends to avoid conflict between the Federal and Paulson’s interests. He employs principle-centered reasoning that builds on fairness. He applies the utilitarian approach when he consents to Paulson’s plea to rescue AIG since it would benefit the majority.
Fuld
He presents false financial statements to investors indicating that Lehman is financially stable and its liquidity is high, yet it is on the verge of collapsing. He is leading a company whose financial position is manipulated with overvalued assets. These actions cost the firm its reputation. Fuld’s behavior shows that Lehman does not uphold business ethics. First, an ethical business should comply with the law and meet the demands of all stakeholders. The company’s share price is too low, and maximization of shareholder’s wealth is neglected over egoistic motives. There is a strong linkage between business ethics and financial performance, which is why Lehman fails terribly.
Paulson
Paulson displays a favoritism mentality as he seeks to help the firms he is interested in at all costs. He brokers Bearn’s bailout agreement. A conflict of interest arises when he has multiple obligations. Fuld is pushing him so hard to bail out Lehman, too, but he has to ensure that CEO is accountable for their actions in destabilizing the firm’s financial position.
My opinion and feelings about the film
The concept under evaluation in this film is accurate as it reflects reality. I find it very instrumental in educating the public on ethical issues in finance and the intertwining of politics and the private and public financial sectors. It is true that the government considers some firms critical not only to the financial system but also to the nation’s overall economy. This justifies the government’s measures to protect such a company from adverse events. The moral hazard highlighted by the film arises when these companies over-rely on confidence in the government’s intervention and end up tolerating a massive risk at the expense of the taxpayers’ money. The film is an excellent tool to shape the thoughts of the citizens and their stand on the decision of the government to take a proactive stand in related economic situations. I support the “too big to fail” view, but with conditions that the government, before making such a risky move, should consider the hidden motives of the company under consideration. Trust must exist to ensure ethical behaviors are upheld in all dealings. Hedging systemic risk using public funds is an appropriate decision, as Paulson depicts in his negotiations, but too, firms should be held accountable for their actions to some extent.
Impact on me
This film has shaped my moral view of business operations. It has pushed me to think of the consequences of my actions and decisions, especially where conflicts of interest are imminent. I have to decide on the decision that results in the maximum benefit to all. Again, I have recognized the need to maintain proper books of account which reflect the true nature of the firm because manipulation might impress the public but, in a real sense, very disastrous. Fuld manipulates books but struggles to rescue the firm and eventually collapses under his leadership. Therefore, I commit to truthfully cultivating ethical values based on virtues.
Judgment of the behavior of the main characters
An egoistical mentality is evident as I view the behaviors depicted by the main characters like Fuld, Paulson, and Benard. The characters, especially Fuld and Paulson, are driven by a selfish interest to strike deals for the firms affiliated with them. Again, Fuld and other executives at Lehman compensate themselves hefty amounts. Even though their perception is optimistic, they have poor speculations. The decisions this key player in the economy made failed because they were unethical and ill-formed. Greed can be described as the sole cause of the crisis, beginning with banks selling mortgage-backed securities and the government failing to intervene simply because they were making much money, as Paulson alludes later.
Media Question One
Considering the business ethics dilemma assessing whether banks are too big to fail. The best decision in light of the four methods of ethical reasoning is that, yes, they must be protected at all expenses because their failure impacts the entire economy. The virtues approach pushes us to judge a decision from a broader perspective other than the mere bottom line. The utmost decision observes this as it includes the dimension of the best outcome, which all the decision-makers would be happy with. The utility dimension is fulfilled as the benefits of protecting banks as controllers of the economy outweigh the costs in terms of the taxpayers’ funds utilized. The rights of ordinary consumers are considered in such a decision that aims at improving credit flow. Finally, the justice dimension poses the question; is the action fair enough? A just decision that looks into the party paying the cost and the one enjoying the benefits. In the case under analysis, the taxpayers pay the cost of federal intervention to protect the banks from the financial crisis. The same taxpayers enjoy the availability of credit facilities to propel the economy. There is no precise way to determine who benefits more than the other. Another aspect emerging here is the trust that the banks, once funded, will commit to lending. With that fully guaranteed by strict regulations, then the decision is fair.
Media Question Two
Because the protagonist’s ethical dilemma involves a trade of the moral hazard eminent, I would be very keen on designing the nature of the most effective solution. The following are applicable;
- To buy more time and engage Congress in structuring strict regulations on utilizing the bailout.
- To make haste and effect the bailout before the banks suffer further and rely on trust that they will use the funds as intended.
I prefer the first decision. Weighing the effects of the delay and the benefits of having the funds meet the intended purpose without friction and conflict of interest, it is worth it. The priority reasoning in judgment is the utilitarian approach, as it involves public assets.
Media Question Three
My key learning points pertain to the methods of ethical reasoning. Before deciding, I must ensure the four reasonings align to lead to a similar conclusion. In a complex ethical dilemma where the reasonings give rise to distinct conclusions, I must prioritize the judgments concerning the issue’s sensitivity.
Bibliography
Greenberg, M. R. & Cunningham, L. A. (2013). The AIG Story. NJ: Wiley
Hanson, C. (2011). Too Big To Fail. (DVD). USA: Home Box Office (HBO). Web.
Sorkin, A. R. (2010). Too Big to Fail: The Inside Story of How Wall Street and Washington Fought to Save the Financial System and Themselves, New York, NY, Penguin Group.
write